FIESTA RESTAURANT : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

March 05, 2021 at 06:07 am EST

The following Management's Discussion and Analysis of financial condition and
results of operations ("MD&A") is written to help the reader understand our
company. The MD&A is provided as a supplement to, and should be read in
conjunction with, our audited consolidated financial statements and the
accompanying notes. Any reference to restaurants refers to company-owned
restaurants unless otherwise indicated.
We use a 52- or 53-week fiscal year ending on the Sunday closest to December 31.
The fiscal years ended December 29, 2019; December 30, 2018; December 31, 2017;
and January 1, 2017, each contained 52 weeks. The fiscal year ended January 3,
2021 contained 53 weeks. The next fiscal year to contain 53 weeks will be the
fiscal year ending January 3, 2027.

Company Overview
We own, operate and franchise two restaurant brands, Pollo Tropical® and Taco
Cabana®, which have over 30 and 40 years, respectively, of operating history and
loyal customer bases. Our Pollo Tropical restaurants feature fire-grilled and
crispy citrus marinated chicken and other freshly prepared menu items, while our
Taco Cabana restaurants specialize in Mexican-inspired food with most items made
fresh. We believe that both brands offer distinct and unique flavors with broad
appeal at a compelling value, which differentiates them in the competitive
fast-casual and quick-service restaurant segments. Nearly all of our restaurants
offer the convenience of drive-thru windows. As of January 3, 2021, our
restaurants included 138 Pollo Tropical restaurants in Florida and 143 Taco
Cabana restaurants in Texas for a total of 281 restaurants.
We franchise our Pollo Tropical restaurants primarily in international markets,
and as of January 3, 2021, we had 23 franchised Pollo Tropical restaurants
located in Puerto Rico, Panama, Guyana, Ecuador, and the Bahamas, and five on
college campuses and one at a hospital in Florida. We have agreements for the
continued development of franchised Pollo Tropical restaurants in certain of our
existing franchised markets.
As of January 3, 2021, we had six franchised Taco Cabana restaurants located in
New Mexico.

Events Affecting Our Results of Operations
COVID-19 Pandemic
The novel coronavirus (COVID-19) pandemic has affected and is continuing to
affect the restaurant industry and the economy. In response to COVID-19 and in
compliance with governmental restrictions, we closed the dining room seating
areas in all Pollo Tropical and Taco Cabana restaurants, limiting service to
take-out, drive-thru, and delivery operations beginning in mid-March 2020. We
also temporarily closed three Pollo Tropical locations due to the impact of the
restrictions on sales, one of which was reopened during the second quarter of
2020 and two of which were subsequently permanently closed in August 2020. We
began opening certain dining rooms at 50% capacity with the easing of
municipality restrictions during the second quarter of 2020; however, we
temporarily closed all dining rooms on July 12, 2020, in response to increased
COVID-19 infection rates in both Texas and Florida. We began re-opening certain
dining rooms and patios with limited capacity and hours at both brands and the
state of Florida removed restaurant capacity restrictions at the end of
September 2020. We opened approximately 25 dining rooms with limited hours and
capacity at both brands and opened approximately 75 patios at Taco Cabana in the
fourth quarter of 2020. We are evaluating opening additional dining rooms with
limited hours at Pollo Tropical and Taco Cabana. Comparable restaurant sales at
both Pollo Tropical and Taco Cabana restaurants declined in 2020 compared to the
prior year as a result of the pandemic. However, both brands experienced
sequential comparable restaurant sales improvement in the third and fourth
quarters of 2020 compared to the second quarter of 2020.
As we continue to prioritize the well-being of our team members and guests
during this pandemic, we believe we are also creating a better business model
that is easier and safer for our consumers. We currently do not expect sales
trends to significantly deteriorate further, although there can be no assurance
that sales trends will not deteriorate further, and we have implemented measures
to control costs. We have also implemented a number of changes to maximize
sales, maintain service, and improve liquidity:
•We have adjusted our operating model to better meet our customers' needs during
the COVID-19 crisis. We have also adjusted staffing models to match shifting
traffic and channel patterns of our guests and to improve efficiency.
•We are maximizing off-premise sales opportunities. We significantly increased
the number of delivery service providers that offer our brands during the first
quarter of 2020, modified our menus, and worked with a third party to
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enhance our online ordering and mobile apps including curbside pickup features.
We launched curbside pickup for both brands in July 2020.
•We reduced our 2020 capital expenditures to $18.4 million as compared to $41.2
million in 2019.
•We terminated or furloughed and subsequently terminated approximately 55
support personnel positions representing annualized general and administrative
savings of approximately $4.1 million. Additionally, the salaries for all
vice-presidents and executives were reduced by 10% to 35% for the second quarter
of 2020.
•We sold six restaurant properties and completed seven sale-leaseback
transactions in 2020. We have completed one sale-leaseback transaction in the
first quarter of 2021 through March 4, 2021, and currently have offers or
contracts in place for the sale or sale-leaseback of our two remaining owned
properties, although there can be no assurance that any such sale will be
consummated. Net proceeds from the transactions that occurred prior to November
23, 2020, were used to reduce the outstanding revolving credit borrowings and
availability under our former amended senior credit facility (as defined below).
•We repaid and terminated our former amended senior credit facility and entered
into a new senior credit facility with a five-year maturity and a minimum
liquidity covenant (as defined in the new senior credit facility) until January
3, 2022, which we believe provides us with more flexibility.
We incurred additional costs related to the COVID-19 pandemic totaling an
estimated $4.3 million during the year ended January 3, 2021, including
additional labor costs such as COVID-19 special incentive pay, quarantine pay
and overtime to cover for employees in quarantine, as well as COVID-19 testing
costs and additional operating expenses for safety related supplies including
masks, cleaning supplies and sanitizer. Although we discontinued COVID-19
special incentive pay after the second quarter of 2020, we expect many of the
other COVID-19 related costs to continue during the pandemic.
Restaurant Closures
As a result of restaurant portfolio reviews, we closed 19 underperforming Taco
Cabana restaurants in January 2020, all of which were impaired in prior years.
Additionally, we closed one Pollo Tropical restaurant as a result of landlord
redevelopment that was not compatible with our use in the first quarter of 2020,
two underperforming Pollo Tropical restaurants in the third quarter of 2020, and
one Taco Cabana restaurant at the end of its lease term in the fourth quarter of
2020. In addition, we closed and sold one owned Pollo Tropical restaurant and
two owned Taco Cabana restaurants in the third and fourth quarters of 2020 to
generate additional cash to reduce our outstanding borrowings under our former
amended senior credit facility.
New Senior Credit Facility
On November 23,2020, we entered into a new senior secured credit agreement (the
"new senior credit facility") that provides for a term loan of $75.0 million and
a revolving credit facility of $10.0 million. The new senior credit facility
matures on November 23, 2025. We borrowed $75.0 million in term loan borrowings
subject to a 2.0% original issue discount on November 23, 2020, and the
revolving credit facility is undrawn as of January 3, 2021. Revolving credit
borrowings under our former amended senior credit facility were fully repaid
using proceeds from the term loan borrowings. See Note 8 to our consolidated
financial statements and Senior Credit Facility under Liquidity and Capital
Resources in this MD&A for a further discussion.

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Executive Summary-Consolidated Operating Performance for the Year Ended
January 3, 2021
Our fiscal year 2020 results include the following:
•We recognized a net loss of $(10.2) million in 2020, or $(0.40) per diluted
share, compared to a net loss of $(84.4) million, or $(3.18) per diluted share
in 2019, due in part to a $67.9 million goodwill impairment charge for the Taco
Cabana reporting unit and a $13.5 million charge to establish a valuation
allowance on our deferred income tax assets in 2019, as well as an income tax
benefit in 2020 related to adjusting our deferred tax asset valuation allowance
and reclassifying certain assets as qualified improvement property and other
changes to depreciation methods for certain assets in conjunction with filing
our 2019 federal income tax return in 2020. Lower advertising and repair and
maintenance expense in 2020 and the extra week in our 2020 fiscal year
contributed to the reduction in net loss in 2020, partially offset by the impact
of declines in comparable restaurant sales at both brands in 2020, higher
delivery fees in 2020, and additional costs related to the COVID-19 pandemic. In
addition, gains from the sale-leaseback and sale of property, lower general and
administrative expenses and other impairment charges, as well as favorable
operating and labor efficiencies at both brands in 2020, positively contributed
to the reduction of the net loss in 2020.
•Total revenues decreased 16.1% in 2020 to $554.8 million from $660.9 million in
2019, driven primarily by a decrease in comparable restaurant sales at both
brands (including as a result of the impact of COVID-19), and the impact of
closing 19 underperforming Taco Cabana restaurants in the first quarter of 2020,
partially offset by the extra week in our 2020 fiscal year. Comparable
restaurant sales decreased 14.7% for our Pollo Tropical restaurants resulting
from a decrease in comparable restaurant transactions of 22.1% and an increase
in the net impact of product/channel mix and pricing of 7.4%. Comparable
restaurant sales decreased 14.4% for our Taco Cabana restaurants resulting from
a decrease in comparable restaurant transactions of 22.1% and an increase in the
net impact of product/channel mix and pricing of 7.7%.
•Consolidated Adjusted EBITDA decreased $13.5 million for the twelve months
ended January 3, 2021, to $45.0 million compared to $58.4 million for the twelve
months ended December 29, 2019, driven primarily by the impact of lower
restaurant sales and higher delivery fee expense and additional costs related to
the COVID-19 pandemic in 2020, partially offset by lower advertising and general
and administrative expenses, favorable operating and labor efficiencies, the
impact of the closure of unprofitable restaurants in the first quarter of 2020,
and the additional week in 2020. Consolidated Adjusted EBITDA is a non-GAAP
financial measure of performance. For a discussion of our use of Consolidated
Adjusted EBITDA and a reconciliation from net income (loss) to Consolidated
Adjusted EBITDA, see "Management's Use of Non-GAAP Financial Measures."
•The COVID-19 pandemic had the largest impact on our first and second quarters.
Comparable restaurant sales improved sequentially in the third and fourth
quarters. In addition, we made changes that resulted in improved
Restaurant-level Adjusted EBITDA margins in the third and fourth quarters of
2020 compared to the same periods in the prior year. Restaurant-level Adjusted
EBITDA is a non-GAAP financial measure. For a discussion of our use of
Restaurant-level Adjusted EBITDA and a reconciliation from net income (loss) to
Restaurant-level Adjusted EBITDA, see "Management's Use of Non-GAAP Financial
Measures."

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Results of Operations
The following table summarizes the changes in the number and mix of Pollo
Tropical and Taco Cabana Company-owned and franchised restaurants in each fiscal
year:
                                                2020                                                 2019                                                 2018
                            Owned           Franchised            Total          Owned           Franchised            Total          Owned           Franchised            Total
Pollo Tropical:
Beginning of year            142                 32               174             139                 30               169             146                 31               177
  New                          -                  2                 2               3                  2                 5               7                  -                 7
  Closed                      (4)                (5)               (9)              -                  -                 -             (14)                (1)              (15)
End of year                  138                 29               167             142                 32               174             139                 30               169

Taco Cabana:
Beginning of year            164                  8               172             162                  8               170             166                  7               173
  New                          1                  -                 1               3                  -                 3               7                  1                 8

  Closed                     (22)                (2)              (24)             (1)                 -                (1)            (11)                 -               (11)
End of year                  143                  6               149             164                  8               172             162                  8               170

The following table sets forth, for the years ended January 3, 2021; December 29, 2019; and December 30, 2018, selected consolidated operating results as a percentage of consolidated restaurant sales and selected segment operating results as a percentage of applicable segment restaurant sales:


                                                                                                       Year Ended
                                         December 29,         December 30,         January 3,          December 29,         December 30,         January 3,          December 29,         December 30,
                  January 3, 2021            2019                 2018                2021                 2019                 2018                2021                 2019                 2018
                                       Pollo Tropical                                                   Taco Cabana                                                  Consolidated
Restaurant sales:
Pollo Tropical                                                                                                                                       56.82  %             54.95  %             54.58  %
Taco Cabana                                                                                                                                          43.18  %             45.05  %             45.42  %
Consolidated
restaurant sales                                                                                                                                     100.0  %             100.0  %             100.0  %
Costs and
expenses:
Cost of sales             31.9  %              31.8  %              32.9  %             29.5  %              31.1  %              30.8  %             30.8  %              31.5  %              31.9  %
Restaurant wages
and related
expenses                  23.7  %              23.5  %              23.2  %             31.3  %              31.8  %              32.5  %             27.0  %              27.2  %              27.4  %
Restaurant rent
expense                    7.2  %               6.1  %               4.7  %              9.5  %               8.7  %               6.0  %              8.2  %               7.3  %               5.3  %
Other restaurant
operating
expenses                  15.1  %              13.8  %              13.8  %             14.6  %              14.2  %              15.8  %             14.9  %              14.0  %              14.7  %

Advertising

expense 2.7 % 3.4 % 3.5 % 2.7 % 3.6 % 3.4 % 2.7 % 3.5 % 3.5 %
Pre-opening costs - % 0.1 % 0.2 % - % 0.2 % 0.3 % - % 0.1 % 0.3 %

Consolidated Revenues. Revenues include restaurant sales and franchise royalty
revenues and fees. Restaurant sales consist of food and beverage sales, net of
discounts, at our restaurants. Franchise royalty revenues and fees represent
ongoing royalty payments that are determined based on a percentage of franchisee
sales and the amortization of initial franchise fees and area development fees
associated with the opening of new franchised restaurants. Restaurant sales are
influenced by new restaurant openings, closures of restaurants and changes in
comparable restaurant sales.
Total revenues decreased 16.1% to $554.8 million in 2020 from $660.9 million in
2019, while the 2019 total revenues represent a decrease of 4.0% from $688.6
million in 2018. Restaurant sales decreased 16.0% to $552.8 million in 2020 from
$658.3 million in 2019, while 2019 restaurant sales represent a decrease of 4.0%
from $685.9 million in 2018.
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The following table presents the primary drivers of the increase or decrease in
restaurant sales for both Pollo Tropical and Taco Cabana (in millions):
2020 vs. 2019 2019 vs. 2018
Pollo Tropical:
Decrease in comparable restaurant sales $ (51.7) $ (6.3)
Decrease in sales related to closed restaurants, net of new
restaurants and other (1.7) (6.4)
Additional week in 2020 5.8 -
Total decrease $ (47.6) $ (12.7)

Taco Cabana:
Decrease in comparable restaurant sales $ (38.5) $ (12.0)
Decrease in sales related to closed restaurants, net of new
restaurants and other (23.5) (3.0)
Additional week in 2020 4.1 -
Total decrease $ (57.9) $ (15.0)

Restaurants are included in comparable restaurant sales after they have been
open for 18 months. Restaurants are excluded from comparable restaurant sales
for any fiscal month in which the restaurant was closed for more than five days.
Comparable restaurant sales are compared to the same period in the prior year.
For comparative purposes, the calculation of the changes in comparable
restaurant sales is based on a 52-week fiscal year. Restaurant sales for the
extra week in the fiscal year ended January 3, 2021 have been excluded for
purposes of calculating the change in comparable company-owned restaurant sales.
Comparable restaurant sales in 2020 for both brands were negatively impacted by
COVID-19. However, both brands experienced sequential comparable restaurant
sales improvement in the third and fourth quarters of 2020 compared to
comparable restaurant sales in the second quarter of 2020. We believe our
significant mix of dine-in sales prior to the pandemic had a negative impact on
comparable restaurant sales.
Comparable restaurant sales decreased 14.7% and 14.4% for Pollo Tropical and
Taco Cabana restaurants, respectively, in 2020. Increases or decreases in
comparable restaurant sales result primarily from an increase or decrease in
comparable restaurant transactions and in average check. Changes in average
check are primarily driven by changes in sales channel and sales mix, and to a
lesser extent, menu price increases net of discounts and promotions.
For Pollo Tropical, a decrease in comparable restaurant transactions of 22.1%
was partially offset by an increase in the net impact of product/channel mix and
pricing of 7.4% in 2020 compared to 2019. The increase in product/channel mix
and pricing was driven primarily by increases in delivery and drive-thru average
check and sales channel penetration, and menu price increases of 0.4%.
For Taco Cabana, a decrease in comparable restaurant transactions of 22.1% was
partially offset by an increase in the net impact of product/channel mix and
pricing of 7.7% in 2020 compared to 2019. The increase in product/channel mix
and pricing was driven primarily by increases in drive-thru and delivery sales
channel penetration and growth in average check for drive-thru compared to last
year due in part to an increase in transactions that include alcohol and menu
price increases of 0.9%.
Comparable restaurant sales decreased 1.8% and 4.1% for Pollo Tropical and Taco
Cabana restaurants, respectively, in 2019.
For Pollo Tropical, a decrease in comparable restaurant transactions of 2.4% was
partially offset by an increase in average check of 0.6% in 2019 compared to
2018. The increase in average check was driven primarily by menu price increases
of 1.6%, partially offset by discounted pricing for Pollo Time. As a result of
new restaurant openings, sales cannibalization of existing restaurants
negatively impacted comparable restaurant sales for Pollo Tropical by 0.9% in
2019 compared to 2018. In addition, we estimate that Hurricane Dorian negatively
impacted comparable restaurant sales for Pollo Tropical by approximately 0.4%.
For Taco Cabana, a decrease in comparable restaurant transactions of 5.7% was
partially offset by an increase in average check of 1.6% in 2019 compared to
2018. The increase in average check was driven primarily by menu price increases
of 2.0% and the introduction of higher priced shareables in 2019 partially
offset by sales mix. We simplified the Taco Cabana menu in the fourth quarter of
2019 to improve execution. The menu simplification efforts included removal of
certain menu items and limited other items to certain dayparts. While the menu
simplification improved guest satisfaction and reduced order cycle times, the
reduced menu resulted in a greater than anticipated transaction decline. We
re-introduced select items to the menu
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and expanded dayparts in the first quarter of 2020 to increase sales while
maintaining the operational improvements provided by the menu simplification.
Franchise revenues decreased $0.7 million to $2.0 million in 2020 compared to
2019 due to lower sales at franchised restaurants as a result of COVID-19.
Franchise revenues remained flat in 2019 compared to 2018.
Operating costs and expenses. Operating costs and expenses include cost of
sales, restaurant wages and related expenses, other restaurant expenses and
advertising expenses. Cost of sales consists of food, paper and beverage costs
including packaging costs, less rebates and purchase discounts. Cost of sales is
generally influenced by changes in commodity costs, the sales mix of items sold
and the effectiveness of our restaurant-level controls to manage food and paper
costs. Key commodities, including chicken and beef, are generally purchased
under contracts for future periods of up to one year.
Restaurant wages and related expenses include all restaurant management and
hourly productive labor costs, employer payroll taxes, restaurant-level bonuses
and related benefits. Payroll and related taxes and benefits are subject to
inflation, including minimum wage increases and changes in costs for health
insurance, workers' compensation insurance and state unemployment insurance.
Other restaurant operating expenses include all other restaurant-level operating
costs, the major components of which are utilities, repairs and maintenance,
general liability insurance, sanitation, supplies and credit card and delivery
fees. In addition, for periods prior to fiscal 2019, other restaurant operating
expenses include real estate taxes related to our leases characterized as
operating leases.
Advertising expense includes all promotional expenses including television,
radio, billboards and other sponsorships and promotional activities and agency
fees.
Pre-opening costs include costs incurred prior to opening a restaurant,
including restaurant employee wages and related expenses, travel expenditures,
recruiting, training, promotional costs associated with the restaurant opening
and rent, including any non-cash rent expense recognized during the construction
period. Pre-opening costs are generally incurred beginning four to six months
prior to a restaurant opening.

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The following tables present the primary drivers of the changes in the
components of restaurant operating margins for Pollo Tropical and Taco Cabana.
All percentages are stated as a percentage of applicable segment restaurant
sales.
2020 vs. 2019 2019 vs. 2018
Pollo Tropical:
Cost of sales(1):
Sales mix 0.8 % 1.1 %
Lower rebates and discounts from suppliers 0.3 % - %

Menu offering improvement and impact of commodity costs 0.1 % (1.5) %
Operating efficiencies (1.0) % (0.6) %
Higher (lower) promotions and discounts (0.2) % 0.4 %
Menu price increases (0.2) % (0.5) %
Other(2) 0.3 % - %

Net increase (decrease) in cost of sales as a percentage of restaurant sales

                                                              0.1  %                  (1.1) %

Restaurant wages and related expenses:


  Higher labor costs due to COVID-19(3)                                       0.5  %                     -  %

Higher labor costs for comparable restaurants(1)(4)                             -  %                   0.7  %
Lower labor costs due to labor efficiencies                                  (0.3) %                     -  %

Lower labor costs due to restaurant closures, net of new restaurants

                                                                     -  %                  (0.5) %
  Other                                                                         -  %                   0.1  %

Net increase in restaurant wages and related expenses as a percentage of restaurant sales


  0.2  %                   0.3  %

Other operating expenses:
Higher delivery fees                                                          1.5  %                   0.4  %
Lower repairs and maintenance costs                                          (0.3) %                     -  %
Contracted cleaning services                                                    -  %                   0.5  %
Real estate tax classification(5)                                               -  %                  (1.0) %

  Other                                                                       0.1  %                   0.1  %
Net change in other restaurant operating expenses as a percentage
of restaurant sales                                                           1.3  %                     -  %

Advertising expense:
Reduced advertising                                                          (0.7) %                  (0.1) %

Net decrease in advertising expense as a percentage of restaurant sales

                                                                        (0.7) %                  (0.1) %

Pre-opening costs:


  Decrease in number of restaurant openings                                  (0.1) %                  (0.1) %

Net decrease in pre-opening costs as a percentage of restaurant sales

                                                                        (0.1) %                  (0.1) %


(1)  Includes costs related to the Strategic Renewal Plan (the "Plan") in 2018.
(2)  Other consists of any other driver with an impact of less than 20 basis
points.
(3)  Primarily includes the impact of COVID-19 related special incentive pay and
quarantine pay, which is partially offset (0.1%) by lower incentive bonus
resulting from the special incentive pay.
(4)  Includes the impact of higher wage rates and overtime due to labor
shortages in 2019.
(5)  Due to the adoption of ASC 842, real estate taxes are included in rent
expense in 2020 and 2019 and in other operating expenses in 2018.

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                                                                   2020 vs. 2019            2019 vs. 2018
Taco Cabana:
Cost of sales(1):
  Menu offering improvement and higher (lower) commodity costs              (1.5) %                   1.0  %
  Operating efficiencies                                                    (0.7) %                     -  %
  Higher (lower) promotions and discounts                                   (0.5) %                   0.5  %
  Menu price increases                                                      (0.3) %                  (0.6) %

  Sales mix                                                                  1.1  %                  (0.5) %
  Lower rebates and discounts from suppliers                                 0.3  %                     -  %
  Other                                                                        -  %                  (0.1) %

Net increase (decrease) in cost of sales as a percentage of restaurant sales

                                                            (1.6) %                   0.3  %

Restaurant wages and related expenses:


  Lower labor costs due to labor efficiencies                               (1.4) %                  (0.2) %
Higher labor costs due to COVID-19(2)                                        0.7  %                     -  %
Higher (lower) incentive bonus costs                                         0.2  %                  (0.4) %

  Other                                                                        -  %                  (0.1) %

Net decrease in restaurant wages and related expenses as a percentage of restaurant sales

                                              (0.5) %                  (0.7) %

Other operating expenses:
Higher delivery fees                                                         0.9  %                   0.2  %
Higher (lower) repairs and maintenance                                      (0.4) %                   0.3  %
Real estate tax classification(3)                                              -  %                  (1.7) %
Lower security costs                                                        (0.1) %                  (0.2) %

  Other                                                                        -  %                  (0.2) %

Net increase (decrease) in other restaurant operating expenses as a percentage of restaurant sales

                                          0.4  %                  (1.6) %

Advertising expense:


  Increased (reduced) advertising                                           (0.9) %                   0.2  %

Net increase (decrease) in advertising expense as a percentage of restaurant sales

                                                         (0.9) %                   0.2  %

Pre-opening costs:


  Decrease in number of restaurant openings                                 (0.2) %                  (0.1) %

Net decrease in pre-opening costs as a percentage of restaurant sales

                                                            (0.2) %                  (0.1) %


(1)  Includes costs related to the Plan in 2018.
(2)  Primarily includes the impact of COVID-19 related special incentive pay and
quarantine pay, which is partially offset (0.1%) by lower incentive bonus
resulting from the special incentive pay.
(3)  Due to the adoption of ASC 842, real estate taxes are included in rent
expense in 2020 and 2019 and in other operating expenses in 2018.
Consolidated Restaurant Rent Expense. Beginning in fiscal 2019, restaurant rent
expense includes base rent, contingent rent and common area maintenance and
property taxes related to our leases characterized as operating leases. For
periods prior to the adoption of ASC 842 at the beginning of fiscal 2019,
restaurant rent expense included base rent and contingent rent on our leases
characterized as operating leases, reduced by amortization of gains on
sale-leaseback transactions. Restaurant rent expense, as a percentage of total
restaurant sales, increased to 8.2% in 2020 from 7.3% in 2019, due primarily to
the impact of lower comparable restaurant sales. Restaurant rent expense, as a
percentage of total restaurant sales, was 7.3% in 2019 compared to 5.3% in 2018,
due primarily to a $3.3 million increase in rent expense as a result of no
longer amortizing gains on
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sale-leaseback transactions, the inclusion of property taxes and common area
maintenance costs related to our leases characterized as operating leases, and
the impact of lower comparable restaurant sales.
Consolidated General and Administrative Expenses. General and administrative
expenses are comprised primarily of (1) salaries and expenses associated with
the development and support of our Company and brands and the management
oversight of the operation of our restaurants; and (2) legal, auditing and other
professional fees, corporate system costs, and stock-based compensation expense.
General and administrative expenses decreased to $53.1 million in 2020 from
$56.2 million in 2019, and as a percentage of total revenues, were 9.6% in 2020
and 8.5% in 2019 due primarily to the impact of lower total revenues partially
offset by lower management support costs primarily as a result of headcount
reductions in the second quarter of 2020, reduced travel and other cost savings
initiatives. General and administrative expenses in 2020 also included $1.1
million related to severance costs associated with positions eliminated in
response to the COVID-19 pandemic, $0.8 million related to digital and brand
repositioning costs, and $0.1 million related to search fees for senior
executive positions. General and administrative expense in 2019 included $1.0
million related to restructuring costs due to eliminated or relocated
positions, $0.4 million related to digital and brand repositioning costs and
$0.5 million related to search fees for senior executive positions.
General and administrative expenses increased to $56.2
million in 2019 from $54.5 million in 2018, and as a percentage of total
revenues, were 8.5% in 2019 and 7.9% in 2018 due primarily to the impact of
lower total revenues on higher general and administrative expenses including
investments in off-premise support in 2019. General and administrative expense
in 2019 also included $1.0 million related to restructuring costs due to
eliminated or relocated positions, $0.4 million related to digital and brand
repositioning costs and $0.5 million related to search fees for senior executive
positions. General and administrative expenses in 2018 included $0.5 million
related to the Strategic Renewal Plan restructuring costs and retention bonuses,
$0.4 million related to discontinuing certain services, $1.0 million related to
system implementation and project-oriented advisory services and $1.0 million
related to severance costs and executive and board member searches, partially
offset by the benefit of fee reductions and final insurance recoveries totaling
$0.6 million related to 2017 shareholder activism matters and reductions to
final settlement amounts related to a litigation matter of $0.2 million.
Adjusted EBITDA. Adjusted EBITDA is the primary measure of segment profit or
loss used by our chief operating decision maker for purposes of allocating
resources to our segments and assessing their performance and is defined as
earnings attributable to the applicable segment before interest expense, income
taxes, depreciation and amortization, impairment and other lease charges,
goodwill impairment, closed restaurant rent expense, net of sublease income,
stock-based compensation expense, other expense (income), net, and certain
significant items that management believes are related to strategic changes
and/or are not related to the ongoing operation of our restaurants.
Adjusted EBITDA may not necessarily be comparable to other similarly titled
captions of other companies due to differences in methods of calculation
Adjusted EBITDA for each of our segments includes an allocation of general and
administrative expenses associated with administrative support for executive
management, information systems and certain finance, legal, supply chain, human
resources, development, and other administrative functions. Consolidated
Adjusted EBITDA is a non-GAAP financial measure of performance. For a discussion
of our use of Adjusted EBITDA and Consolidated Adjusted EBITDA and a
reconciliation from net income (loss) to Consolidated Adjusted EBITDA, see the
heading entitled "Management's Use of Non-GAAP Financial Measures."
Adjusted EBITDA for Pollo Tropical restaurants decreased to $36.5 million, or
11.6% of total revenues, in 2020 from $50.6 million, or 13.9% of total revenues,
in 2019 due primarily to the impact of lower restaurant sales, including the
impact of COVID-19, higher delivery fee expense, and additional costs related to
the COVID-19 pandemic, partially offset by lower advertising expense, labor
costs as a percentage of restaurant sales due to labor efficiencies, certain
other operating expenses, and general and administrative expenses. Adjusted
EBITDA for our Taco Cabana restaurants increased to $8.5 million, or 3.5% of
total revenues, in 2020 from $7.9 million, or 2.7% of total revenues, in 2019
due primarily to lower cost of sales as a percentage of restaurant sales,
advertising expenses, certain other operating expenses, labor costs as a
percentage of restaurant sales due to labor efficiencies, the impact of the
closure of unprofitable restaurants in the first quarter of 2020 and lower
general and administrative expenses, partially offset by the impact of lower
restaurant sales, including the impact of COVID-19, higher delivery fee expense
and additional costs related to the COVID-19 pandemic. In addition, we estimate
the additional week of sales in our fiscal 2020 had a $1.7 million and $1.2
million favorable impact on Adjusted EBITDA for Pollo Tropical and Taco Cabana,
respectively, in 2020.
Adjusted EBITDA for Pollo Tropical restaurants decreased to $50.6 million (which
includes the negative impact of a $1.5 million increase in rent expense as a
result of adopting ASC 842 and the estimated negative impact of Hurricane Dorian
of $0.6 million), or 13.9% of total revenues, in 2019 from $54.9 million, or
14.6% of total revenues, in 2018 due primarily to the impact of lower restaurant
sales, including the impact of Hurricane Dorian, and higher rent expense,
contracted cleaning
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services, delivery fees and general and administrative expenses, partially
offset by lower cost of sales as a percentage of restaurant sales. Adjusted
EBITDA for our Taco Cabana restaurants decreased to $7.9 million (which includes
the negative impact of a $1.9 million increase in rent expense as a result of
adopting ASC 842), or 2.7% of total revenues, in 2019 from $13.1 million, or
4.2% of total revenues, in 2018 due primarily to the impact of lower restaurant
sales and higher rent expense, cost of sales as a percentage of restaurant
sales, delivery fees, and general and administrative expenses, partially offset
by lower restaurant wages and related expenses as a percentage of restaurant
sales.
Restaurant-level Adjusted EBITDA. We also use Restaurant-level Adjusted EBITDA,
a non-GAAP financial measure, as a supplemental measure to evaluate the
performance and profitability of our restaurants in the aggregate, which is
defined as Adjusted EBITDA excluding franchise royalty revenues and fees,
pre-opening costs and general and administrative expenses (including
corporate-level general and administrative expenses).
Restaurant-level Adjusted EBITDA for Pollo Tropical was $61.3 million (19.5% of
restaurant sales), $77.6 million (which includes the negative impact of a $1.5
million increase in rent expense as a result of adopting ASC 842 and the
estimated negative impact of Hurricane Dorian of $0.6 million) (21.4% of
restaurant sales), and $82.1 million (21.9% of restaurant sales) in 2020, 2019,
and 2018, respectively. Restaurant-level Adjusted EBITDA for Taco Cabana was
$29.7 million (12.4% of restaurant sales), $31.4 million (which includes the
negative impact of a $1.9 million increase in rent expense as a result of
adopting ASC 842) (10.6% of restaurant sales), and $36.3 million (11.7% of
restaurant sales) in 2020, 2019, and 2018, respectively. The changes in
Restaurant-level Adjusted EBITDA were primarily due to the foregoing. In
addition, we estimate the additional week of sales in our fiscal 2020 had a $2.0
million and $1.4 million favorable impact on Restaurant-level Adjusted EBITDA
for Pollo Tropical and Taco Cabana, respectively, in 2020. For a reconciliation
from Adjusted EBITDA to Restaurant-level Adjusted EBITDA, see the heading
entitled "Management's Use of Non-GAAP Financial Measures."
Depreciation and Amortization. Depreciation and amortization expense decreased
to $38.2 million in 2020 from $39.2 million in 2019 due primarily to decreased
depreciation as a result of impairing closed restaurant assets, partially offset
by an increase in depreciation related to new restaurant openings and ongoing
reinvestment and enhancements to our restaurants. Depreciation and amortization
expense increased to $39.2 million in 2019 from $37.6 million in 2018 primarily
as a result of increased depreciation related to new restaurant openings and
ongoing reinvestment and enhancements to our restaurants, partially offset by a
decrease in depreciation as a result of impairing closed restaurant assets.
Impairment and Other Lease Charges. Impairment and other lease charges decreased
to $9.1 million in 2020 from $13.1 million in 2019.
Impairment and other lease charges in 2020 for Pollo Tropical include impairment
charges of $7.3 million related primarily to the impairment of assets from three
underperforming Pollo Tropical restaurants, two of which we closed in the third
quarter of 2020, the write-down of saucing islands and self-service soda
machines that are being removed from dining rooms as a result of COVID-19, and
the write-down of assets held for sale to their fair value less costs to sell,
and lease termination charges of $0.9 million for restaurant locations we
decided not to develop, net of a gain from lease terminations of $(0.2) million.
Impairment and other lease charges in 2020 for Taco Cabana include impairment
charges of $1.1 million related primarily to the write-down of assets held for
sale to their fair value less costs to sell and the impairment of assets for two
underperforming Taco Cabana restaurants that we continue to operate, and two
offsetting lease terminations.
Impairment and other lease charges decreased to $13.1 million in 2019 from $21.1
million in 2018. Impairment and other lease charges in 2019 consisted of
impairment charges for Pollo Tropical and Taco Cabana restaurants of $0.8
million and $13.2 million, respectively, and net lease charge recoveries for
Pollo Tropical and Taco Cabana restaurants of $(0.8) million and $(0.1) million,
respectively. Impairment charges in 2019 also included right-of-use assets and
were related primarily to 19 Taco Cabana restaurants that were subsequently
closed in January 2020, five of which were initially impaired in prior years, as
well as previously closed Pollo Tropical restaurants and other underperforming
Taco Cabana restaurants that we continued to operate, while the net lease charge
recoveries were related primarily to lease terminations for previously closed
restaurants.
Impairment and other lease charges in 2018 consisted of impairment charges for
Pollo Tropical and Taco Cabana restaurants of $13.1 million and $6.0 million,
respectively, and lease and other charges for Pollo Tropical and Taco Cabana
restaurants (as well as a Taco Cabana office location) of $0.5 million and $1.6
million, respectively, net of recoveries. Impairment charges in 2018 were
related primarily to 14 Pollo Tropical restaurants that were closed in 2018, two
of which were initially impaired in 2017, nine Taco Cabana restaurants that were
closed in 2018, one of which was initially impaired in 2017, two Taco Cabana
restaurants that were closed in 2020, and one Pollo Tropical restaurant and four
Taco Cabana restaurants that we continued to operate. Other lease charges, net
of recoveries, in 2018 were related primarily to restaurants and an office
location that were closed in 2018 as well as previously closed restaurants.
Each quarter we assess the potential impairment of any long-lived assets that
have experienced a triggering event, including restaurants for which the related
trailing twelve-month cash flows are below a certain threshold. We determine if
there is
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impairment at the restaurant level by comparing undiscounted future cash flows
from the related long-lived assets, exclusive of operating lease payments, to
their respective carrying values, excluding operating lease liabilities. In
determining future cash flows, significant estimates are made by us with respect
to future operating results of each restaurant over its remaining lease term,
including sales trends, labor rates, commodity costs and other operating cost
assumptions. If assets are determined to be impaired, the impairment charge is
measured by calculating the amount by which the asset group's carrying amount
exceeds its fair value. This process of assessing fair values requires the use
of estimates and assumptions, including our ability to sell or reuse the related
assets and market conditions, and for right-of-use lease assets, current market
lease rent and discount rates, which are subject to a high degree of judgment.
If these assumptions change in the future, we may be required to record
impairment charges for these assets and these charges could be material. Due to
the uncertainty associated with the unprecedented nature of the COVID-19
pandemic and the impact it will continue to have on restaurant operations and
future cash flows, it is reasonably possible that the estimates of future cash
flows used in impairment assessments will change in the near term and the effect
of the change could be material. Our current estimates assume that operating
restrictions, regulations and directives for restaurants and other changes
related to COVID-19 will continue to have a significant impact through at least
the first half of 2021 with the greatest impact in the near term.
For four Pollo Tropical restaurants and four Taco Cabana restaurants with
combined carrying values (excluding right-of-use lease assets) of $2.8 million
and $1.4 million, respectively, projected cash flows are not substantially in
excess of their carrying values. In addition, one Pollo Tropical restaurant and
one Taco Cabana restaurant with combined carrying values (excluding right-of-use
lease assets) of $1.9 million and $0.9 million, respectively, have initial sales
volumes lower than expected, but do not have significant operating history to
form a good basis for future projections. If the performance of these
restaurants does not improve as projected, an impairment charge could be
recognized in future periods, and such charge could be material.
Goodwill Impairment. Goodwill impairment was $67.9 million in 2019 and consisted
of non-cash impairment charges to write down the value of goodwill for the Taco
Cabana reporting unit.
Closed Restaurant Rent Expense, Net of Sublease Income. Closed restaurant rent
expense, net of sublease income was $6.5 million in 2020 and consisted of closed
restaurant rent and ancillary lease costs of $6.9 million and $4.9 million net
of sublease income of $(4.8) million and $(0.5) million for Pollo Tropical and
Taco Cabana, respectively.
Closed restaurant rent expense, net of sublease income was $4.2 million in
2019 and consisted of closed restaurant rent and ancillary lease costs of $6.8
million and $1.4 million net of sublease income of $(3.4) million and $(0.5)
million for Pollo Tropical and Taco Cabana, respectively.
Other Expense (Income), Net. Other expense (income), net was $(1.7) million in
2020 and primarily consisted of total gains of $(3.8) million on the
sale-leaseback of seven restaurant properties and the sale of six restaurant
properties, partially offset by $1.5 million in costs for the removal, transfer
and storage of equipment from closed restaurants and other closed restaurant
costs and $0.7 million for the write-off of site development costs. Other
expense (income), net in 2019 primarily consisted of $0.8 million in costs for
the removal, transfer and storage of equipment from closed restaurants and $0.1
million for the write-off of site development costs. Other expense (income), net
in 2018 consisted primarily of $(3.5) million in insurance recoveries related to
the Hurricanes and total gains of $(1.2) million on the sale of three restaurant
properties, partially offset by the write-off of site development costs of $0.6
million and severance costs related to the closure of restaurants and costs for
the removal, transfer and storage of equipment from closed restaurants of $1.1
million.
Interest Expense. Interest expense increased $0.9 million to $4.8 million in
2020 from 2019 due to a higher borrowing level under our former amended senior
credit facility and higher interest rates in 2020 and to higher interest rates
under the term loan in our new senior credit facility. Interest expense
decreased $0.1 million to $3.9 million in 2019 from 2018 due primarily to lower
interest rates and a lower borrowing level under our former senior credit
facility in 2019.
Loss on Extinguishment of Debt. Loss on extinguishment of debt was $1.2 million
in 2020 and consisted of charges to write-off unamortized deferred financing
costs related to the capacity reduction and termination of our former senior
credit facility.
Provision for (Benefit from) Income Taxes. The effective tax rate was 44.8% for
the year ended January 3, 2021, and (12.5)% for the year ended December 29,
2019. The benefit from income taxes for 2020 includes a benefit related to the
carryback of net operating losses and reclassifying certain assets as qualified
improvement property as permitted by the Coronavirus Aid, Relief, and Economic
Security Act (the "CARES Act") and other changes to depreciation methods for
certain assets made in conjunction with a cost segregation study conducted prior
to filing our 2019 federal income tax return, as well as a decrease to the
valuation allowance on our deferred tax assets related to changes in our
deferred tax assets and liabilities. The provision for income taxes for 2019
included the effect of impairing non-deductible goodwill and establishing a
valuation allowance on our deferred income taxes.
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The CARES Act, which was signed into law on March 27, 2020, includes provisions
that allow net operating losses arising in 2018, 2019, and 2020 to be carried
back for up to five years and includes technical amendments that are retroactive
to 2018 which permit certain assets to be classified as qualified improvement
property and expensed immediately.
The effective tax rate was (12.5)% for 2019 and (55.3)% for 2018. The change in
the effective rate was primarily the result of impairing non-deductible goodwill
and establishing a valuation allowance on our deferred income tax assets in 2019
and changing the depreciation method for certain assets for federal income tax
purposes to accelerate tax deductions in 2018 as well as the impact of lower
pre-tax earnings (excluding non-deductible goodwill) in 2019.
Net Income (Loss). As a result of the foregoing, we had a net loss of $10.2
million in 2020 compared to a net loss of $84.4 million in 2019, and net income
of $7.8 million in 2018.

Liquidity and Capital Resources
We do not have significant receivables or inventory and receive trade credit
based upon negotiated terms in purchasing food products and other supplies.
Although, as a result of our substantial cash balance, we did not have a working
capital deficit at January 3, 2021, we have the ability to operate with a
substantial working capital deficit (and we have historically operated with a
working capital deficit) because:
•restaurant operations are primarily conducted on a cash basis;
•rapid turnover results in a limited investment in inventories; and
•cash from sales is usually received before related liabilities for supplies and
payroll become due.
Capital expenditures and payments related to our lease obligations represent
significant liquidity requirements for us. We believe our cash reserves, cash
generated from our operations, and availability of borrowings under our senior
credit facility will provide sufficient cash availability to cover our
anticipated working capital needs, capital expenditures and debt service
requirements for the next twelve months.
Operating Activities. Net cash provided by operating activities for 2020, 2019,
and 2018 was $40.3 million, $65.0 million and $53.8 million, respectively. The
$24.8 million decrease in net cash provided by operating activities in 2020
compared to 2019 was driven primarily by a decrease in Adjusted EBITDA and the
receipt of a tax refund in 2019, partially offset by the timing of payments. The
impact of extended vendor payment terms in 2020 was partially offset by the
payment of January 2021 rent in fiscal 2020 as a result of the 53rd week in
fiscal 2020. The $11.2 million increase in net cash provided by operating
activities in 2019 compared to 2018 was driven primarily by the receipt of a tax
refund, partially offset by a decrease in Adjusted EBITDA and the timing of
payments.
Investing Activities. Net cash provided by investing activities in 2020 was $8.4
million. Net cash used in investing activities in 2019, and 2018 was $39.4
million and $52.1 million, respectively. Capital expenditures are typically the
largest component of our investing activities and include: (1) new restaurant
development, which may include the purchase of real estate; (2) restaurant
remodeling/reimaging, which includes the renovation or rebuilding of the
interior and exterior of our existing restaurants; (3) other restaurant capital
expenditures, which include capital maintenance expenditures for the ongoing
reinvestment and enhancement of our restaurants; and (4) corporate and
restaurant information systems.
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Table of Contents The following table sets forth our capital expenditures for the periods presented (dollars in thousands):


                                               Pollo               Taco
                                              Tropical            Cabana             Other             Consolidated
Year ended January 3, 2021:
New restaurant development                  $   1,009          $     854          $       -          $       1,863
Restaurant remodeling                             358                745                  -                  1,103
Other restaurant capital expenditures(1)        6,542              4,728                  -                 11,270
Corporate and restaurant information
systems                                         1,254                887              1,992                  4,133
Total capital expenditures                  $   9,163          $   7,214          $   1,992          $      18,369
Number of new restaurant openings                   -                  1                                         1
Year ended December 29, 2019:
New restaurant development                  $   7,325          $   4,065          $       -          $      11,390
Restaurant remodeling                           1,654                919                  -                  2,573
Other restaurant capital expenditures(1)       10,069              9,266                  -                 19,335
Corporate and restaurant information
systems                                         2,873              3,773              1,303                  7,949
Total capital expenditures                  $  21,921          $  18,023          $   1,303          $      41,247
Number of new restaurant openings                   3                  3                                         6
Year ended December 30, 2018:
New restaurant development                  $  12,340          $   9,105          $       -          $      21,445
Restaurant remodeling                              51                531                  -                    582
Other restaurant capital expenditures(1)       12,157             15,307                  -                 27,464
Corporate and restaurant information
systems                                         3,119              3,943              1,297                  8,359
Total capital expenditures                  $  27,667          $  28,886          $   1,297          $      57,850
Number of new restaurant openings                   7                  7                                        14


(1)Excludes restaurant repair and maintenance expenses included in other
restaurant operating expenses in our consolidated financial statements. For the
years ended January 3, 2021; December 29, 2019; and December 30, 2018, total
restaurant repair and maintenance expenses were approximately $17.4 million,
$23.1 million, and $23.4 million, respectively.
Cash provided by investing activities in 2020 included net proceeds of $17.2
million from the sale-leaseback of seven restaurant properties and $9.6 million
from the sale of an additional six restaurant properties.
In 2019, investing activities also included net proceeds of $1.8 million from
the sale of one restaurant property.
In 2018, investing activities also included $4.7 million in additional proceeds
received related to three restaurant properties and $1.0 million received
related to a closed Taco Cabana restaurant that suffered flood damages due to
Hurricane Harvey and a Taco Cabana restaurant that was temporarily closed due to
a fire.
Total capital expenditures in 2021 are expected to be between $33.0 million and
$38.0 million including $12.0 million to $15.0 million for digital platforms and
technology enhancements.
Financing Activities. Net cash used in financing activities in 2020 was $8.5
million and included net revolving credit borrowing repayments under our former
amended senior credit facility of $75.0 million, $3.0 million in payment of debt
issuance costs associated with our former amended senior credit facility and new
senior credit facility combined with $3.7 million in payments to repurchase our
common stock, partially offset by proceeds of $73.5 million under our new senior
credit facility.
Net cash used in financing activities in 2019 included $14.3 million in payments
to repurchase our common stock combined with net revolving credit borrowing
repayments under our former senior credit facility of $3.0 million.
Net cash used in financing activities in 2018 included $2.8 million in payments
to repurchase our common stock and $0.2 million in payment of debt issuance
costs associated with our former senior credit facility, offset by net
borrowings under our former senior credit facility of $3.0 million.
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New Senior Credit Facility. On November 23, 2020, we terminated our former
amended senior secured revolving credit facility, referred to as the "former
senior credit facility," and entered into a new senior secured credit facility,
which is referred to as the "new senior credit facility." The new senior credit
facility is comprised of a term loan facility (the "term loan facility") of
$75.0 million and a revolving credit facility (the "revolving credit facility")
of up to $10.0 million and matures on November 23, 2025. The new senior credit
facility also provides for potential incremental term loan borrowing increases
of up to $37.5 million in the aggregate, subject to, among other items,
compliance with a minimum Total Leverage Ratio and other terms specified in the
new senior credit facility. On January 3, 2021, there were $75.0 million in
outstanding borrowings, subject to an original issue discount, under the term
loan facility and no borrowings under the revolving credit facility.
Under the new senior credit facility, we must repay the unpaid principal amount
of the term loan facility quarterly which commences on March 31, 2021, in an
amount equal to 0.25% of the aggregate principal amount of the term loan
facility on the effective date of the new senior credit facility, resulting in
annual mandatory repayments of $0.8 million.
The new senior credit facility provides that we must maintain minimum Liquidity
(as defined in the new senior credit facility) of $20.0 million (the "Liquidity
Threshold") until January 3, 2022. The new senior credit facility also provides
that we are not required to be in compliance with the Total Leverage Ratio under
the new senior credit facility until January 3, 2022, or the date in which
Liquidity is less than the Liquidity Threshold. We will be permitted to exercise
equity cure rights with respect to compliance with the Total Leverage Ratio
subject to certain restrictions as set forth in the new senior credit facility.
Borrowings under the new senior credit facility bear interest at a rate per
annum, at our option, equal to either (all terms as defined in the new senior
credit facility):
1)  the Base Rate plus the Applicable Margin of 6.75% with a minimum Base Rate
of 2.00%, or
2)  the LIBOR (or Benchmark Replacement) Rate plus the Applicable Margin of
7.75%, with a minimum LIBOR (or Benchmark Replacement) Rate of 1.00%.
In addition, the new senior credit facility requires us to pay a commitment fee
of 0.50% per annum on the daily amount of the unused portion of the revolving
credit facility.
The outstanding borrowings under the revolving credit facility are prepayable
without penalty or premium (other than customary breakage costs). The
outstanding borrowings under the term loan facility are voluntarily prepayable
by us, and the term loan facility provides that each of the following shall
require a mandatory prepayment of outstanding term loan borrowings by us as
follows: (i) 100% of any cash Net Proceeds (as defined in the new senior credit
facility) in excess of $2.0 million individually or in the aggregate over the
term of the new senior credit facility in respect of any Casualty Event (as
defined in the new senior credit facility) affecting collateral provided that we
are permitted to reinvest such Net Proceeds in accordance with the new senior
credit facility, (ii) 100% of any Net Proceeds of a Specified Equity
Contribution (as defined in the new senior credit facility), (iii) 100% of any
cash Net Proceeds from the issuance of debt issued by us or our subsidiaries
other than Permitted Debt (as defined in the new senior credit facility), (iv)
100% of any Net Proceeds from the Disposition (as defined in the new senior
credit facility) of certain assets individually, or in the aggregate, in excess
of $2.0 million in any fiscal year provided that we are permitted to reinvest
such Net Proceeds in accordance with the new senior credit facility and (v)
beginning with the fiscal year ending January 2, 2022, an amount equal to the
Excess Cash Flow (as defined in the new senior credit facility) in accordance
with the new senior credit facility.
Our new senior credit facility contains customary default provisions, including
without limitation, a cross default provision pursuant to which it is an event
of default under this facility if there is a default under any of our
indebtedness having an outstanding principal amount in excess of $5.0 million
which results in the acceleration of such indebtedness prior to its stated
maturity or is caused by a failure to pay principal when due.
The new senior credit facility contains certain covenants, including, without
limitation, those limiting our ability to, among other things, incur
indebtedness, incur liens, sell or acquire assets or businesses, change the
character of our business in any material respects, engage in transactions with
related parties, make certain investments, make certain restricted payments or
pay dividends.
Our obligations under the new senior credit facility are secured by all of our
and our subsidiaries' assets (including a pledge of all of the capital stock and
equity interests of our subsidiaries).
Under the new senior credit facility, the lenders may terminate their obligation
to advance and may declare the unpaid balance of borrowings, or any part
thereof, immediately due and payable upon the occurrence and during the
continuance of customary defaults which include, without limitation, payment
default, covenant defaults, bankruptcy type defaults, defaults on other
indebtedness, certain judgments or upon the occurrence of a change of control
(as specified in the new senior credit facility).
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As of January 3, 2021, we were in compliance with the financial covenants under
our new senior credit facility. At January 3, 2021, $10.0 million was available
for borrowing under the revolving credit facility.
Former Senior Credit Facility. On July 10, 2020, we entered into the Second
Amendment to Credit Agreement (as previously defined as the "former senior
credit facility") among Fiesta and a syndicate of lenders that included
adjustments to our covenants that were more reflective of current sales and
profit trends. Pursuant to the former senior credit facility, the available
revolving credit borrowings under the former senior credit facility were reduced
from $150.0 million to $95.0 million in a phased reduction beginning with a
$30.0 million permanent reduction that occurred on July 10, 2020. The former
senior secured credit facility was terminated on November 23, 2020.
Initial Share Repurchase Plan
In 2018, our board of directors approved a share repurchase program for up to
1.5 million shares of our common stock. In 2019, our board of directors approved
increases to the share repurchase program of an additional 1.5 million shares of
our common stock. Under the share repurchase program, shares may be repurchased
from time to time in open market transactions at prevailing market prices, in
privately negotiated transactions or by other means in accordance with federal
securities laws, including Rule 10b-18 under the Securities Exchange Act of
1934, as amended. The number of shares repurchased and the timing of repurchases
will depend on a number of factors, including, but not limited to, stock price,
trading volume, general market and economic conditions, and other corporate
considerations. The share repurchase program has no time limit and may be
modified, suspended, superseded or terminated at any time by our board of
directors. Our new senior credit facility prohibits share repurchases, and we
currently do not intend to repurchase additional shares of our common stock for
the foreseeable future.
Contractual Obligations
The following table summarizes our contractual obligations and commitments as of
January 3, 2021 (in thousands):
                                                                               Payments due by period
                                                                  Less than            1 - 3              3 - 5            More than
Contractual Obligations                         Total               1 Year             Years              Years             5 Years
Credit facility debt obligations, including
interest(1)                                   $ 106,633          $   7,338

$ 14,479 $ 84,816 $ - Finance lease obligations, including interest(2)

                                          2,734                455                921                645                713
Operating lease obligations(3)                     450,488             40,741             84,086             73,425            252,236

Purchase obligations(4)                          10,328              6,862              3,323                143                  -
Total contractual obligations                 $ 570,183          $  55,396

$ 102,809 $ 159,029 $ 252,949

(1)Our credit facility debt obligations at January 3, 2021, totaled $75.0
million. Total interest payments on the obligations of $31.4 million for all
years presented are included at the cash interest rate of 8.75%. Total credit
facility fees of $0.2 million for all years presented are included based on
January 3, 2021, rates and balances. Actual interest and fee payments will vary
based on our outstanding credit facility balances and the rates in effect during
those years. Refer to Note 8 of the consolidated financial statements included
in this Annual Report on Form 10-K for details of our debt.
(2)Includes total interest of $0.9 million for all years presented.
(3) Represents the aggregate minimum lease payments under operating leases.
Many of our leases also require contingent rent based on a percentage of sales
in addition to the minimum base rent and require expenses incidental to the use
of the property, all of which have been excluded from this table.
(4) Represents contractual obligations under various agreements to purchase
goods or services that are enforceable and legally binding and include $7.7
million related to the master subscription agreement for an ERP system through
April 27, 2024.
We have not included in the contractual obligations table payments we may make
for workers' compensation, general liability and employee health care claims for
which we pay all claims, subject to some annual stop-loss limitations both for
individual claims and claims in the aggregate. The majority of our recorded
liabilities related to employee health and insurance plans represent estimated
reserves for incurred claims that have yet to be filed or settled. We are also
party to various service and supply contracts that generally extend
approximately twelve months. These arrangements are primarily individual
contracts for routine goods and services that are part of our normal operations
and are reflected in historical operating cash flow trends. These contract
obligations are generally short-term in nature and can be canceled within a
reasonable time period, at our option. We do not believe such arrangements will
adversely affect our liquidity position.
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Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements. Prior to the adoption of ASC 842,
off-balance sheet arrangements consisted of our operating leases, which are
primarily for our restaurant properties and are now included in other current
liabilities and operating lease liabilities on the consolidated balance sheet as
of January 3, 2021.
Inflation
The inflationary factors that have historically affected our results of
operations include increases in food and paper costs, labor and other operating
expenses and energy costs. Labor costs in our restaurants are impacted by
changes in the federal and state hourly minimum wage rates as well as changes in
payroll related taxes, including federal and state unemployment taxes. We
typically attempt to offset the effect of inflation, at least in part, through
periodic menu price increases and various cost reduction programs. However, no
assurance can be given that we will be able to fully offset such inflationary
cost increases in the future.
Application of Critical Accounting Policies
Our consolidated financial statements and accompanying notes are prepared in
accordance with accounting principles generally accepted in the United States of
America. Preparing consolidated financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue and expenses. These estimates and assumptions are affected
by the application of our accounting policies. Our significant accounting
policies are described in the "Basis of Presentation" note in the Notes to our
Consolidated Financial Statements. Critical accounting estimates are those that
require application of management's most difficult, subjective, or complex
judgments, often as a result of matters that are inherently uncertain and may
change in subsequent periods.
Sales recognition at our restaurants is straightforward as customers pay for
products at the time of sale and inventory turns over very quickly. Payments to
vendors for products sold in the restaurants are generally settled within 60
days. The earnings reporting process is covered by our system of internal
controls and generally does not require significant management estimates and
judgments. However, critical accounting estimates and judgments, as noted below,
are inherent in the assessment and recording of insurance liabilities, the
valuation of goodwill for impairment, assessing impairment of long-lived assets,
lease accounting matters and the valuation of deferred income tax assets. While
we apply our judgment based on assumptions believed to be reasonable under the
circumstances, actual results could vary from these assumptions. It is possible
that materially different amounts would be reported using different assumptions.
Insurance liabilities. We are insured for workers' compensation, general
liability and medical insurance claims under policies where we pay all claims,
subject to annual stop-loss limitations both for individual claims and for
general liability, medical insurance and certain workers' compensation claims in
the aggregate. At January 3, 2021, we had $10.4 million accrued for these
insurance claims. We record insurance liabilities based on historical and
industry trends, which are continually monitored, with the assistance of
actuaries, and adjust accruals as warranted by changing circumstances. Since
there are estimates and assumptions inherent in recording these insurance
liabilities, including the ability to estimate the future development of
incurred claims based on historical trends or the severity of the claims,
differences between actual future events and prior estimates and assumptions
could result in adjustments to these liabilities.
Evaluation of Goodwill. We must evaluate our recorded goodwill for impairment
annually or more frequently when events and circumstances indicate that the
carrying amount may be impaired. We have elected to conduct our annual
impairment review of goodwill assets as of the last day of our fiscal year. We
may first qualitatively assess goodwill impairment to determine whether it is
more likely than not that the fair value of a reporting unit is less than its
carrying amount. This qualitative analysis is performed by examining key events
and circumstances affecting fair value. If it is determined it is more likely
than not that the reporting unit's fair value is not greater than its carrying
amount, we perform a quantitative assessment. We adopted ASU No.
2017-04, Simplifying the Test for Goodwill Impairment ("ASU 2017-04") in the
second quarter of 2019, which eliminates the requirement to calculate the
implied fair value of goodwill if the fair value of a reporting unit is less
than the carrying amount of the reporting unit. Instead, if the carrying amount
of a reporting unit exceeds its fair value, an impairment loss will be
recognized in an amount equal to that excess, limited to the total amount of
goodwill allocated to that reporting unit.
In performing the quantitative assessment for impairment, we compare the net
book values of our reporting units to their estimated fair values. In
determining the estimated fair values of the reporting units, we employ a
combination of a discounted cash flow analysis based on management's best
estimates of future cash flows and one or two market-based approaches. The
results of these analyses are corroborated with other value indicators where
available, such as comparable company earnings multiples. This evaluation of
goodwill requires us to make estimates and assumptions to determine the fair
value of our
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reporting units including projections regarding future operating results,
anticipated growth rates, the weighted average cost of capital used to discount
projected cash flows, and market multiples.
We performed a qualitative assessment, which included examining key events and
circumstances affecting fair value, for our annual impairment review as of
January 3, 2021, and determined it was more likely than not that the Pollo
Tropical reporting unit's fair value was greater than its carrying amount. As of
January 3, 2021, our Pollo Tropical reporting unit goodwill has a carrying value
of $56.3 million and our Taco Cabana reporting unit goodwill has no remaining
carrying value as it was fully impaired in 2019. See Note 4 to our audited
consolidated financial statements.
We estimate the fair value of the Pollo Tropical reporting unit significantly
exceeds its carrying value as of January 3, 2021. The estimates and assumptions
used to determine and assess fair value may differ from actual future events and
if these estimates or related projections change significantly in the future, we
may be required to record material impairment charges for goodwill assets.
Impairment of Long-lived Assets. We assess the potential impairment of
long-lived assets, principally property and equipment and operating lease
right-of-use assets, whenever events or changes in circumstances indicate that
the carrying value of the restaurant asset group may not be recoverable. In
addition to considering management's plans, known regulatory/governmental
actions and damage due to acts of God (hurricanes, tornadoes, etc.), we consider
an event indicating that the carrying value may not be recoverable to have
occurred related to a specific restaurant if the restaurant's cash flows for the
last twelve months are less than a minimum threshold or if consistent levels of
cash flows for the remaining lease period are less than the carrying value of
the restaurant's assets. We determine if there is impairment at the restaurant
level by comparing undiscounted future cash flows from the related long-lived
assets to their respective carrying values. We have elected to exclude operating
lease payments and liabilities from future cash flows and carrying values,
respectively, in the comparison. In determining future cash flows, significant
estimates are made by us with respect to future operating results of each
restaurant over its remaining lease term, including sales trends, labor rates,
commodity costs and other operating cost assumptions. If assets are determined
to be impaired, the impairment charge is measured by calculating the amount by
which the asset carrying amount exceeds its fair value. This process of
assessing fair values requires the use of estimates and assumptions, including
our ability to sell or reuse the related assets and market conditions and, for
right-of-use lease assets, current market lease rent and discount rates, which
are subject to a high degree of judgment. If these assumptions change in the
future, we may be required to record impairment charges for these assets and
these charges could be material.
For four Pollo Tropical restaurants and four Taco Cabana restaurants with
combined carrying values (excluding right-of-use lease assets) of $2.8 million
and $1.4 million, respectively, projected cash flows are not substantially in
excess of their carrying values. In addition, one Pollo Tropical restaurant and
one Taco Cabana restaurant with combined carrying values (excluding right-of-use
lease assets) of $1.9 million and $0.9 million, respectively, have initial sales
volumes lower than expected, but do not have significant operating history to
form a good basis for future projections. If the performance of these
restaurants does not improve as projected, an impairment charge could be
recognized in future periods, and such charge could be material.
Lease Accounting. We adopted Accounting Standards Update ("ASU") 2016-02, Leases
(ASC 842), the new lease accounting standard, as of as of December 31, 2018,
using the modified retrospective method, with certain optional practical
expedients including the transition practical expedient package, which among
other things does not require reassessment of lease classification. Judgments
made by management for our lease obligations include the determination of our
incremental borrowing rate, the determination of standalone selling prices used
to allocate the consideration in the contract, and the length of the lease term,
which includes the determination of renewal options that are reasonably assured.
The lease term can affect the classification of a lease as finance or operating
for accounting purposes, the amount of the lease liability and corresponding
right-of-use lease asset recognized, the term over which related leasehold
improvements for each restaurant are amortized and any rent holidays and/or
changes in rental amounts for recognizing rent expense over the term of the
lease. These judgments may produce materially different amounts of depreciation,
amortization and rent expense than would be reported if different assumed lease
terms were used.
We use our estimated incremental borrowing rate in determining the present value
of lease payments for purposes of determining lease classification and recording
lease liabilities and lease assets on our consolidated balance sheet. Our
incremental borrowing rate is determined based on a synthetic credit rating,
determined using a valuation model, adjusted to reflect a secured credit rating
and a developed spread curve applied to a risk-free rate yield curve. Changes in
the determination of our incremental borrowing rate could also have an impact on
the depreciation and interest expense recognized for finance leases.
Valuation of Deferred Income Tax Assets. Deferred tax assets and liabilities,
which represent temporary differences between the financial statement and tax
basis of assets and liabilities, are measured using enacted tax rates expected
to apply to
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the years in which those differences are expected to be recovered or settled.
Deferred tax assets are recognized to the extent we believe these assets will
more likely than not be realized. A valuation allowance is established to reduce
the carrying amount of deferred tax assets if we believe it is more likely than
not that a portion or all of the tax benefit from these deferred tax assets will
not be realized. The realization of a deferred tax asset is dependent on the
generation of sufficient taxable income in future periods, and the reversal of
existing taxable temporary differences in the applicable periods. In evaluating
the realizability of our net deferred tax assets, we perform an assessment of
positive and negative evidence. The weight given to negative and positive
evidence is commensurate only to the extent that such evidence can be
objectively verified. Objective historical evidence is given greater weight than
subjective evidence such as forecasts of future taxable income. We considered
three years of cumulative operating income (loss) in evaluating the objective
evidence that historical results provide. Objective negative evidence limits our
ability to consider other subjective evidence, such as our future earnings
projections. Based on our evaluation of all available positive and negative
evidence, and placing greater weight on the objective evidence, we determined
that it is more likely than not that our deferred tax assets will not be fully
realized in future periods. We recorded a $13.5 million valuation allowance to
reduce our deferred tax assets in the fourth quarter of 2019, which increased
our tax expense. Based on changes in our deferred tax assets and liabilities in
2020, adjustments to our valuation allowance totaling $0.8 million were recorded
in 2020 resulting in a valuation allowance of $12.7 million as of January 3,
2021. If we generate sufficient taxable income in the future to fully utilize
the tax benefits of the deferred tax assets on which a valuation allowance was
recorded, a portion or all of the valuation allowance could be reversed, which
would decrease our tax expense in the period or periods in which the valuation
allowance is reversed. We will continue to monitor and evaluate the positive and
negative evidence considered in arriving at the above conclusion in order to
assess whether such conclusion remains appropriate in future periods.
New Accounting Pronouncements
In August 2018, the Financial Accounting Standards Board ("FASB") issued ASU No.
2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud
Computing Arrangement That is a Service Contract, which aligns the requirements
for capitalizing implementation costs incurred in a hosting arrangement that is
a service contract with the requirements for capitalizing implementation costs
incurred to develop or obtain internal-use software (and hosting arrangements
that include an internal-use software license). We adopted this new accounting
standard on December 30, 2019, and applied it prospectively to all
implementation costs incurred after the date of adoption. The adoption of this
standard did not have a material effect on our financial statements. We deferred
and amortized application development stage costs for cloud-based computing
arrangements over the life of the related service (subscription) agreement in
the same line item that the fees associated with the subscription arrangement
were presented prior to adoption of the new standard.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740)
("ASU No. 2019-12"), which is a part of the Simplification Initiative being
undertaken by the FASB to reduce complexity of accounting standards. The
amendments in this update simplify the accounting for income taxes by removing
certain exceptions, the most notable for us being the exception to the general
methodology for calculating income taxes in an interim period when the
year-to-date loss exceeds the anticipated loss for the full year. The guidance
will be effective for interim and annual periods beginning after December 15,
2020. Early adoption is permitted and any adjustments should be reflected as of
the beginning of the annual period of adoption. Amendments relevant to us should
be applied on a prospective basis. The impact of the standard is largely
dependent on interim and anticipated profit or loss in a given period, however
we do not expect ASU No. 2019-12 to have a significant impact on our financial
statements.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic
848) ("ASU No. 2020-04"), which provides optional expedients and exceptions for
applying GAAP to contracts, hedging relationships, and other transactions
affected by reference rate reform if certain criteria are met. The amendments in
this update are effective as of March 12, 2020, through December 31, 2022. As of
January 3, 2021, our only exposure to LIBOR rates was our new senior credit
facility. Upon cessation of the LIBOR, the new senior credit facility will use a
benchmark replacement rate. According to ASU No. 2020-04, modifications of
contracts within the scope of Topic 470 Debt should be accounted for by
prospectively adjusting the effective interest rate. We do not expect ASU No.
2020-04 to have a significant impact on our financial statements.

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Management's Use of Non-GAAP Financial Measures
Consolidated Adjusted EBITDA is a non-GAAP financial measure. We use
Consolidated Adjusted EBITDA in addition to net income and income from
operations to assess our performance, and we believe it is important for
investors to be able to evaluate us using the same measures used by management.
We believe this measure is an important indicator of our operational strength
and the performance of our business and it provides a view of operations absent
non-cash activity and items that are not related to the ongoing operation of our
restaurants or affect comparability period over period. Consolidated Adjusted
EBITDA as calculated by us is not necessarily comparable to similarly titled
measures reported by other companies and should not be considered as an
alternative to net income (loss), earnings (loss) per share, cash flows from
operating activities or other financial information determined under GAAP.
The primary measure of segment profit or loss used by the chief operating
decision maker to assess performance and allocate resources is Adjusted EBITDA,
which is defined as earnings attributable to the applicable operating segments
before interest expense, income taxes, depreciation and amortization, impairment
and other lease charges, goodwill impairment, closed restaurant rent expense,
net of sublease income, stock-based compensation expense, other expense
(income), net, and certain significant items for each segment that management
believes are related to strategic changes and/or are not related to the ongoing
operation of our restaurants as set forth in the reconciliation table below.
Adjusted EBITDA for each of our segments includes an allocation of general and
administrative expenses associated with administrative support for executive
management, information systems and certain finance, legal, supply chain, human
resources, construction and other administrative functions. See Note 11 to our
audited consolidated financial statements.
We also use Restaurant-level Adjusted EBITDA as a supplemental measure to
evaluate the performance and profitability of our restaurants in the aggregate,
which is defined as Adjusted EBITDA for the applicable segment excluding
franchise royalty revenues and fees, pre-opening costs, and general and
administrative expenses (including corporate-level general and administrative
expenses). Restaurant-level Adjusted EBITDA margin is derived by dividing
Restaurant-level Adjusted EBITDA by restaurant sales. Restaurant-level Adjusted
EBITDA is also a non-GAAP financial measure.
Management believes that Consolidated Adjusted EBITDA and Restaurant-level
Adjusted EBITDA, when viewed with our results of operations calculated in
accordance with GAAP and our reconciliation of net income (loss) to Consolidated
Adjusted EBITDA and Restaurant-level Adjusted EBITDA (i) provide useful
information about our operating performance and period-over-period changes, (ii)
provide additional information that is useful for evaluating the operating
performance of our business and (iii) permit investors to gain an understanding
of the factors and trends affecting our ongoing earnings, from which capital
investments are made and debt is serviced. However, such measures are not
measures of financial performance or liquidity under GAAP and, accordingly,
should not be considered as alternatives to net income or cash flow from
operating activities as indicators of operating performance or liquidity. Also,
these measures may not be comparable to similarly titled captions of other
companies.
All such financial measures have important limitations as analytical tools.
These limitations include the following:
•such financial information does not reflect our capital expenditures, future
requirements for capital expenditures or contractual commitments to purchase
capital equipment;
•such financial information does not reflect interest expense or the cash
requirements necessary to service payments on our debt;
•although depreciation and amortization are non-cash charges, the assets that we
currently depreciate and amortize will likely have to be replaced in the future,
and such financial information does not reflect the cash required to fund such
replacements; and
•such financial information does not reflect the effect of earnings or charges
resulting from matters that our management does not consider to be indicative of
our ongoing operations. However, some of these charges and gains (such as
impairment and other lease charges, closed restaurant rent expense, net of
sublease income, other income and expense, and stock-based compensation expense)
have recurred and may recur.

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A reconciliation from consolidated net income (loss) to Consolidated Adjusted
EBITDA follows (in thousands):
Year Ended
December 29, December 30,
January 3, 2021 2019 2018

Net income (loss) $ (10,211) $ (84,386) $ 7,787
Provision for (benefit from) income taxes (8,302) 9,369 (2,772)
Income (loss) before taxes (18,513) (75,017) 5,015

Add:

Non-general and administrative expense adjustments:


     Depreciation and amortization                                     38,206              39,195              37,604
     Impairment and other lease charges                                 9,139              13,101              21,144
     Goodwill impairment(1)                                                 -              67,909                   -
     Interest expense                                                   4,756               3,872               3,966

Closed restaurant rent expense, net of sublease income(2)

                                                               6,487               4,163                   -
Loss on extinguishment of debt                                          1,241                   -                   -
     Other expense (income), net                                       (1,697)              1,041              (3,007)

Stock-based compensation expense in restaurant wages

                                                                     200                 195                  90

Total non-general and administrative expense adjustments

                                                            58,332             129,476              59,797

General and administrative expense adjustments:


     Stock-based compensation expense                                   3,284               2,649               3,379

     Board and shareholder matter costs(3)                                  -                   -                (597)

 Restructuring costs and retention bonuses(4)                           1,107                 964                 545

     Legal settlements and related costs(5)                                 -                   -                (177)
     Digital and brand repositioning costs(6)                             770                 377                   -
        Total general and administrative expense


adjustments                                                             5,161               3,990               3,150
Consolidated Adjusted EBITDA                                   $       44,980          $   58,449          $   67,962
Total revenues                                                 $      554,803          $  660,943          $  688,597
Adjusted EBITDA as a percentage of total revenues                         8.1  %              8.8  %              9.9  %


(1)   Goodwill impairment for the twelve months ended December 29, 2019,
consists of a non-cash impairment charge to write down the value of goodwill for
the Taco Cabana reporting unit. The related benefit from income taxes is the
benefit attributable to the portion of the goodwill that was tax deductible.
(2)   Closed restaurant rent, net of sublease income for the twelve months ended
January 3, 2021, and December 29, 2019, primarily consists of closed restaurant
lease costs of $11.8 million and $8.2 million, respectively, partially offset by
sublease income of $(5.3) million and $(4.0) million, respectively. As a result
of adopting ASC 842, lease costs related to closed restaurants are recorded as
closed restaurant rent. Prior to December 31, 2018, these costs were recorded as
lease charges within impairment and other lease charges when a restaurant
closed.
(3)  Board and shareholder matter costs for the twelve months ended December 30,
2018, include fee reductions and final insurance recoveries related to 2017
shareholder activism costs.
(4)  Restructuring costs and retention bonuses for the twelve months ended
January 3, 2021, include severance costs related to eliminated positions related
to terminations in response to the COVID-19 pandemic. Restructuring costs and
retention bonuses for the twelve months ended December 29, 2019, include
severance costs related to eliminated positions. Restructuring costs and
retention bonuses for the twelve months ended December 30, 2018, include
severance costs related to the Strategic Renewal Plan and reduction in force and
bonuses paid to certain employees for retention purposes.
(5)  Legal settlements and related costs for the twelve months ended December
30, 2018, include reductions to final settlement amounts and benefits related to
litigation matters.
(6)   Digital and brand repositioning costs for the twelve months ended
January 3, 2021, and December 29, 2019, include consulting costs related to
repositioning the digital experience for our customers.

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A reconciliation from Adjusted EBITDA to Restaurant-level Adjusted EBITDA
follows (in thousands):
Twelve Months Ended                                            Pollo Tropical              Taco Cabana
January 3, 2021:
Adjusted EBITDA                                             $          36,517          $           8,463

Restaurant-level adjustments:


     Add: Pre-opening costs                                                 -                         69
     Add: Other general and administrative expense(1)                  25,995                     21,921
     Less: Franchise royalty revenue and fees                           1,246                        760
Restaurant-level Adjusted EBITDA                            $          61,266          $          29,693
Restaurant sales                                            $         314,112          $         238,685
Restaurant-level Adjusted EBITDA as a percentage of
restaurant sales                                                         19.5  %                    12.4  %

December 29, 2019:
Adjusted EBITDA                                             $          50,560          $           7,889

Restaurant-level adjustments:


     Add: Pre-opening costs                                               380                        592
     Add: Other general and administrative expense(1)                  28,400                     23,805
     Less: Franchise royalty revenue and fees                           1,780                        900
Restaurant-level Adjusted EBITDA                            $          77,560          $          31,386
Restaurant sales                                            $         361,693          $         296,570
Restaurant-level Adjusted EBITDA as a percentage of
restaurant sales                                                         21.4  %                    10.6  %

December 30, 2018:
Adjusted EBITDA                                             $          54,903          $          13,059
Restaurant-level adjustments:
     Add: Pre-opening costs                                               933                        783
     Add: Other general and administrative expense(1)                  28,045                     23,330
     Less: Franchise royalty revenue and fees                           1,815                        857
Restaurant-level Adjusted EBITDA                            $          82,066          $          36,315
Restaurant sales                                            $

374,381 $ 311,544 Restaurant-level Adjusted EBITDA as a percentage of restaurant sales

                                                         21.9  %                    11.7  %

(1) Excludes general and administrative adjustments included in Adjusted EBITDA.

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Table of Contents

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Fiesta Restaurant Group, Inc.

Equities

FRGI

US31660B1017

Restaurants & Bars

FIESTA RESTAURANT : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K)

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Sector Other Restaurants & Bars